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We endogenize the liquidity and the quality of private assets in a tractable incomplete-market model with heterogeneous agents. The model decomposes the convenience yield of government bond into a "liquidity premium" (flight to liquidity) and a "safety premium" (flight to quality) over the...
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We endogenize the liquidity and the quality of private assets in a tractable incomplete-market model with heterogeneous agents. The model decomposes the convenience yield of government bond into a "liquidity premium" (flight to liquidity) and a "safety premium" (flight to quality) over the...
Persistent link: https://www.econbiz.de/10013210483
Persistent link: https://www.econbiz.de/10012804949
This paper proposes a framework to study contagious stock bubbles in a multi-sector production economy with heterogeneous investment technologies. Due to financial frictions, stock bubbles arise endogenously that help inject additional liquidity. Due to financial linkages, the existence of...
Persistent link: https://www.econbiz.de/10013220277
We show the competing effects of a housing bubble on the real economy by developing a two-sector dynamic model with housing production. On the one hand, firms can sell or collateralize their houses to obtain financing, so a housing bubble helps firms obtain credit to finance their investment and...
Persistent link: https://www.econbiz.de/10014353342
We provide a theory to investigate the implications of time-varying bailout policy for rational bubbles in an infinite-horizon production economy. In particular, we ask two questions. First, should the government bail out asset bubbles? Second, if yes, how? In our model, entrepreneurs face...
Persistent link: https://www.econbiz.de/10012841468
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The Great Recession has witnessed not only a marked disruption in the credit markets and a sharp increase of capital unemployment but also a severe deterioration of the matching efficiency in the labor market, as evidenced by the historically high unemployment rate and a significant outward...
Persistent link: https://www.econbiz.de/10012861832